Description of Business Models. Explanation.

Definition Business Models. Description.

Business Models are systems by which businesses can sustain
themselves and can achieve their corporate purpose, mission and strategy.
It is a description at a strategic level of the way an organization creates, delivers, and captures economic, social, or other forms of value. They apply to commercial, not-for-profit and government organisations.

According to Johnson, Christensen and Kagermann (Reinventing your Business Model, HBR Dec 2008, P50-59), a business model consists out of 4 interrelated elements:

Customer Value Proposition. The way to create value for customers, to solve a problem for them.

Profit Formula. How the company creates value for itself while creating value for its customers.

Key Resources. The most important assets to achieve 1 and 2 and their interaction.

Key Processes. The most important routines and tasks to achieve 1 and 2. For example product design and development, purchasing, manufacturing, marketing, IT. But also rules and metrics, such as margin requirements, credit terms and lead times.

Value proposition Canvas

Alexander has added to this work with a sub-canvas which is used to ensure alignment between the customers “jobs to be done” and the organization's value propositions. He originally referred to this as the Customer Value Canvas. The Value Proposition Canvas is used to test the known and anticipated customer needs against the organization's offerings by looking at how the organization creates “gains” and eliminates “pains” for the customer.